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    Difference in savings

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    36. Last year, you deposit $25,000 into a retirement savings account at a fixed rate of 7.5 %. Today, you could earn a fixed rate of 8% on a similar type account. However, your rate is fixed and cannot be adjusted. How much less could you have deposited last year if you could have earned a fixed rate of 8% and still have the same amount as you currently will when you retire 40 years from today?

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    Solution Preview

    We first calculate the amount at the end of 40 years with a rate of 7.5%
    We use the FVIF table to get the FV ...

    Solution Summary

    The solution explains the difference in amount that needs to be saved given an increase in interest rate